My House Is Your House: Expedia, HomeAway and the Mainstreaming of Alternative Accommodation

Back in 2005, a then little-known startup in Austin, Texas, began acquiring some of the more popular vacation rental listing websites. Within a few short years, the company pretty much dominated the URL and SEO landscape for the still very underdeveloped online vacation rental marketplace. What’s more, it was starting to cause a real stir within the staid world of vacation rental property managers.

The HomeAway proposition – list a home on a popular website for a few hundred bucks a year – was starting to lure vacation home owners away from professional managers. The model was disruptive, and managers – who were accustomed to charging around 30% or more for managing and marketing homes on owners' behalf – weren't happy. Attendees at the Vacation Rental Managers Association's 2008 annual convention could feel the hostility in the air. HomeAway's rapid rise was putting the whole idea of do-it-yourself rentals, or "vacation rental by owner," on the map. The company was the category bad boy.

From Bad Boy to Golden Boy
Expansion continued at a rapid pace. The little startup from Austin was getting big fast, raising about a half a billion dollars by the end of 2008, and acquiring numerous vacation rental listing sites across Europe and Latin America, plus investments in Asia.

There was more to HomeAway's plan, however, than just to upend one model with another. The bigger opportunity was to transform the whole category. Speaking at the 2010 Phocuswright Conference, HomeAway co-founder and CEO, Brian Sharples, mapped out a future when it would be as easy to find and book vacation rentals as it was for hotels.

What followed was a series of acquisitions of technology companies focused on the property manager side of the industry, the integration of professionally managed units into a rapidly expanding global platform, and then a successful public offering in 2011. By then, a champion of owners and managers alike, the disruptive upstart had become the 800-pound gorilla.

And that's when the pace of disruption at the company seemed to slow. With listing volume as a key reporting metric, the company was extremely sensitive – and rightly so – to listings' churn and the attitudes of owners and managers to changes in the HomeAway product. The company was slow to integrate guest reviews and enable online booking and payment, citing owner resistance.

The problem, however, is that while owners weren't keen on reviews for guests or accepting online bookings, travelers were clamoring for both. Traveler reviews were by then de rigueur for travel sites selling hotels. They would only be more important for the unbranded vacation rental experience. And who would want to sign a short-term rental contract and mail in a check to an owner when, for any other type of lodging product, you could book and confirm instantly online with a credit card?

The Challenger Is Challenged
Then seemingly out of nowhere, another startup – formed by three guys in San Francisco – took the rental-by-owner concept but applied it beyond those traditional vacation rental destinations and beyond just second-home owners. Now anybody with a home, or a space within a home, could rent it out to travelers – another trend that some say HomeAway overlooked. But there was another crucial difference: Guest reviews and online booking were baked into the model from the get-go.

While HomeAway is frequently compared to Airbnb, it is Booking.com who is a more direct threat. The world's largest online seller of hotels has made rapid and often unsung gains in HomeAway's core market of vacation rentals. And Booking.com has not only made online booking central to its rental model, it has gone further than Airbnb by making everything instantly bookable (many listings on Airbnb are still "book on request," whereby the host has a window to accept or decline a booking request, but the process, including payment, does occur online). Indeed, it is the lack of instant "bookability" that has kept the Priceline Group at arm's length from HomeAway.

Expedia's acquisition of HomeAway – while surprising to some – really isn't surprising at all. Both companies face formidable competition, in different ways, from Booking.com and Airbnb. HomeAway needs more muscle to drive volume and compete for supply. Expedia has needed a rental strategy for a while. It has lagged as others have capitalized on the rapid rise in private accommodation, and risks are clear: as more OTA shoppers also cross-shop on rental sites, conversion rates on OTAs begin to slip.

Lodging's Alternative Reality
But more importantly, alternative accommodation isn't so alterative anymore. It has grown – and fast – from one in 10 U.S. travelers in 2011 to one in four in 2014. And it's not just in the U.S., it's not just for leisure, and it's not only about vacation rentals (note the recent public offering of Hostelworld and the surprisingly large global demand for homestays). More and more, travelers are looking for great accommodation – not necessarily a great hotel or rental home. OTAs that don't have an alternative mix to offer their customers may find it harder to accommodate them at all.

Join us at The Phocuswright Conference (November 16 – 19, 2015 in Hollywood/Ft. Lauderdale, FL USA): Dara Khosrowshahi, president and CEO of Expedia, and Brian Sharples, co-founder and CEO of HomeAway.com, will each take the stage for one-on-one interviews to share their views on the acquisition and the future of private accommodation in travel.